Under pressure: Advocates try to persuade tax-writing panel

Now the Senate Finance Committee has to make its choices from a dozen options

Apr. 20, 2013

Sen. Tim Ashe (D/P-Chittenden), chairman of the Senate Finance Committee, asks a question during testimony on a proposed hike in the cigarette tax at the Statehouse in Montpelier last week. / GLENN RUSSELL/FREE PRESS

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Free Press Staff Writer

MONTPELIER — A constantly changing cast of worried Vermonters filled the chairs, the windowsill and the open space by the door of the Senate Finance Committee room every afternoon last week, each group representing a special interest that might be affected by a possible tax change.

Even Gov. Peter Shumlin, who has been trying to discourage lawmakers from increasing broad-based taxes and promoting instead several narrower revenue initiatives, assigned two, sometimes three top staff to monitor the deliberations of the seven-member committee as it analyzed at least a dozen tax proposals in preparation for writing and voting on a tax bill this week.

The pressure on the panel hasn’t come solely from the parade of visitors — such as brewers and beverage distributors worried about the state taking unclaimed beverage deposits — who shared their stories and concerns with the committee as decision time approaches.

Many on the finance committee received a shower of “robo calls” this past week in a campaign paid for by the Vermont Association of Realtors, which is concerned about a proposed cap on the mortgage interest deduction.

Bankers have filled committee members’ emails in-boxes with complaints about a Shumlin administration proposal to increase a tax that would affect large banks.

A coalition of health organizations delivered to the committee the results of a new poll paid for by the Campaign for Tobacco Free Kids that suggested public support for increasing the tax on cigarettes.

“You expect it,” Senate Finance Chairman Tim Ashe, D/P-Chittenden said Friday afternoon of the pressure that had built in recent days. He’s seen it before, having served on the committee two years.

“As someone who is elected, you have to make a judgment call,” Ashe said. Using the example of the realtors and the mortgage interest deduction question, he explained the choice the committee members face. “By doing this thing in the face of a room full of very nice people who provide a very nice service, do I actually believe it is still the right thing to do?”

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Ashe has set a new course for the Senate Finance Committee as its chairman this year. He wants the panel to chip away at making the state’s tax code fairer and simpler, not just serve as a revenue-generating machine when spending decisions exceed projected revenues.

As a result, he said some of the committee’s recommendations this week may be fairness changes.

However, the committee will also be asked to recommend ways to generate an additional $12 million to $15 million to accommodate the spending plan Senate budget writers are preparing, Ashe advised the committee.

He said he had yet to receive a specific target from the Senate Appropriations Committee. When it comes fulfilling this task, however, Ashe said, “I don’t want it to be a wide array of taxes.”

One decision down

A week ago, Lauren Hierl from Vermont Public Interest Research Group urged the Senate Finance Committee to authorize the state to collect the unclaimed beverage deposits. It might bring in $1.8 million in new revenue, one of the Legislature’s financial analysts suggested.

Hierl called it a “no-brainer” since it wouldn’t raise taxes on anyone.

“Seven out of 10 states with bottle bills already keep the unredeemed nickels,” she said. A VPIRG poll from 2010 showed that 80 percent of Vermonters support the idea of the state collecting the unclaimed nickels, Hierl said, rather than letting “out-of-state beverage corporations” use the money to offset the costs of handling the returned cans and bottles.

Dave Larose of Coca Cola countered this week, “That was the intent from Day One, that those deposits would help cover that cost.” He said his company has to leave space on delivery trucks for empties and devote 20,000 square feet of its warehouse and two full-time employees to processing the returned containers.

Steve Miller, general manager of Harpoon Brewery, argued, “If the state claims these funds, it will essentially be a tax to distributors.”

The state is in the midst of a study comparing the costs and recovery rates of expanding the bottle bill and maintaining deposits to consolidating all bottle and can recycling to a system without deposits.

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Miller, followed by Justin Johnson, deputy secretary of the Agency of Natural Resource, urged the Finance Committee to postpone any changes in the current system until the study is complete.

Ashe asked who on the committee wanted to keep the beverage deposits on the list of potential revenue options. Four members answered with a thumbs-down. “That puts that issue to bed,” Ashe said.

Mortgage interest deduction

Realtors encircled the table of Finance Committee members Tuesday as the panel delved into data about the mortgage interest deduction that some taxpayers take on their income taxes.

Tom Heney of Heney Realtors in Montpelier called the deduction “vital to the economy” and said that imposing a $10,000 cap would put an additional $7.3 million tax burden on the taxpayers who lose the benefit.

Sen. Kevin Mullin, R-Rutland, who has indicated he wouldn’t support the cap unless the money helped lower property taxes, nevertheless lit into Heney for the “robo calls” that he had received on the issue. Mullin called the call campaign “a real bozo move” and a “colossal waste of your money and our time.”

Sen. Peter Galbraith, D-Windham, laid out to the guests his view that the deduction “is something really heavily skewed to higher incomes. Someone buying the average home in Vermont wouldn’t be affected by the cap at all.”

Michael Costa from the Vermont Department of Taxes disagreed, saying beneficiaries come from every single income class. “The administration would oppose this. It is just the wrong choice.”

Despite the administration’s opposition and the visit from the concerned realtors, Ashe said later that he didn’t buy their views that capping the mortgage interest deduction would be detrimental to most middle-income homeowners.

He said he sees the cap as restoring the deduction to its original purpose of encouraging middle class homeownership rather than giving a tax break to wealthy property owners. “That was not the point, yet that is where most of the benefit goes,” Ashe said.

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For him, if this change is made, it will be a tax fix, not a tax increase, “although it happens to bring in more revenue to the state.”

Tobacco tax

Representatives of organizations that are part of the Coalition for a Tobacco Free Vermont lined one side of the Senate Finance room, while convenience store owners and a small grocer stood and sat along a back wall.

Coalition members — the lung and heart associations and cancer society — presented results from a $17,000 poll that the Campaign for Tobacco Free Kids conducted for them two weeks ago.

The poll’s key take-away message: 75 percent of Vermonters support increasing the tax on cigarettes by $1.25 because it would motivate smokers to try harder to quit and discourage youth from picking up the habit.

And it would generate some revenue — $16.5 million, they estimated.

David Simendinger, president of WESCO which operates 39 Champlain Farms convenience stores in Vermont, focused his testimony on the financial health of Vermont businesses that depend on cigarette sales.

“I’m not a doctor. I can’t talk about that,” Simendinger replied. He returned to economics. “I collect a lot of tax for the state. I have a business model that works.”

Simendinger disputed the contention of the health advocates — including Dr. John Hughes, a clinician and researcher at the University of Vermont who specializes in smoking prevention and cessation — that raising the tax prompts smokers to quit or smoke less.

“I say you are wrong,” Simendinger said. “They are just going to shop somewhere else.”

The House included a 50-cent increase in its tax package. The Shumlin administration opposes any increase.

Ashe suggested Friday the Senate committee might chose to have a separate bill raising cigarette taxes to be clear that the purpose was health, not to raise revenue.

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New bank assessment

The Shumlin administration introduced a new tax option Tuesday when Administration Secretary Jeb Spaulding came to urge the committee to stick with the revenue sources the governor proposed back in January rather than following the lead of the House and raising an array of taxes.

Having scaled back two of the most controversial of the governor’s revenue proposals — shrinking the earned income tax credit and tightening the Reach Up program to achieve savings — Spaulding proposed a $2.4 million increase in the bank franchise tax. It would increase the tax on banks with deposits of more than $750 million, affecting five financial institutions in the state.

He argued it was “fair because the existing tax ends up taking a bigger percentage of a smaller bank’s earnings.”

“The splitting of large versus small is a new idea,” complained Christopher D’Elia, president of the Vermont Bankers Association. He had no inkling of this new option.

The 22 banks in the association were standing together in opposition, D’Elia said. “We have every one of our banks, large and small, contacting legislators.”

D’Elia said banks are an easy target “because people don’t like banks these days, but people need to understand who we are in Vermont. We aren’t the folks on Wall Street.”

The committee will hear from a delegation of bankers Monday and then get down to making choices.

“Everyone comes in and says exempt me from taxes,” Galbraith had commented to one group last week. “Every special interest has a voice, but the people of the state don’t.”

Sen. Christopher Bray, D-Addison, in his first term in the Senate and on the Finance Committee, hopes the committee hits the pause button before making the pending tax decisions.

“I hope we get to discuss what our philosophy of taxation should be before we get swept up,” he said.